Accounting for Step Acquisition under Ind AS 103
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- Last Updated on 20 August, 2025
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Transition from Associate to Subsidiary
In this case, a company initially acquired a significant equity stake in another entity, which gave it significant influence over the investee. As per Ind AS 28 – Investments in Associates and Joint Ventures, the investment was accounted for using the equity method. Over time, the carrying amount of this investment grew as the company recognized its share of the associate’s profits, thereby increasing its book value in the financial statements.
Acquisition of Control and Change in Classification
Subsequently, the company acquired an additional stake in the investee, which resulted in obtaining control over the entity. With this acquisition, the investee’s status changed from an associate to a subsidiary. Under Ind AS, this change in classification triggers a shift in the basis of accounting, as subsidiaries are consolidated line by line in accordance with Ind AS 110 – Consolidated Financial Statements.
Key Accounting Question on Previously Held Interest
The critical accounting issue arises in determining the treatment of the previously held equity interest when control is obtained. Specifically, the question is whether the existing interest should continue at its carrying amount under the equity method, or whether it must be re-measured at fair value on the date control is achieved. This decision impacts not only the measurement of investment but also the recognition of any gain or loss in the consolidated financial statements.
Ind AS Requirements and Financial Reporting Impact
Ind AS requires that when control is obtained, the previously held equity interest in the associate must be re-measured at its fair value, with any resulting gain or loss recognized in the statement of profit and loss. This ensures that the consolidated financial statements reflect the fair value of the entire investment at the acquisition date, providing a transparent and accurate depiction of the transaction. Consequently, the remeasurement aligns reporting with the acquisition method under Ind AS 103 – Business Combinations, thereby enhancing the reliability and comparability of financial information.
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